Accrued Interest: What It Is, How to Calculate It, and Why It Matters for Bond Investors
Warren Team
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Key terms
- BondA fixed-income investment where an investor loans money to an entity (government or corporation) that borrows the funds for a defined period at a fixed interest rate.
- Compound InterestInterest calculated on both the initial principal and accumulated interest from previous periods. Often called 'interest on interest,' it's a powerful force for growing wealth over time.
- Interest RateThe percentage charged by a lender for borrowing money, or earned on savings and investments. Can be fixed or variable depending on the financial product.
- Treasury BondA long-term (20-30 year) debt security issued by the US government. Considered one of the safest investments, pays interest semi-annually. Used to benchmark other interest rates.
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